Friday, July 9, 2010

This Week in Bank Failures

I had the opportunity to explain the idea of a bank failure to a 5-year-old this week. It was something like this: “Imagine that you’re playing Monopoly, and you’re in the middle of the game, and all of a sudden, all the money just vanishes.

“You can’t keep playing without money, so what the banker has to do at that point is find some other money, and figure out how much money each player had, and give them that much money. Then you can go on with the game.”

“But what makes the money disappear?” came the obvious follow-up question.

“I don’t know,” I said mysteriously. “Some people think it’s magic.”

It was Baltimore’s turn for bank failures at closing time tonight. Ideal Federal Savings Bank, “the oldest Black owned financial depository in the State of Maryland” according to its web site, had been operating for 90 years at the same location in Baltimore, but was closed tonight by the OTS. It had $6 million in deposits. The FDIC did not find a buyer for the failed bank, perhaps because of the small size of the office. Instead, it has arranged to make the deposits available temporarily at an M&T Bank branch one mile away. For any deposits that are not claimed in person by July 24, the FDIC will send checks to the depositors.

Baltimore’s Bay National Bank also failed tonight. It had $276 million in deposits at two locations along the beltway. The assets are being sold to an investment group that has chartered a newly formed thrift using the name Bay Bank. The new Bay Bank is taking over the deposits from the failed bank.

Most of Bay National Bank’s problems probably stemmed from real estate development projects in the Inner Harbor area, though the bank itself was located in the suburbs.

In New York, Port Chester-based USA Bank was closed. The bank had one location and $190 million in deposits. The deposits are being transferred to Pennsylvania-based New Century Bank, which is also purchasing the assets.

Stock in USA Bank had only declined, losing 97 percent of its value in barely 3 years. After reviewing its financial condition last year, the bank had been looking to be bought out.

New Century Bank operates under the name Customers 1st Bank, having taken on that name at the end of April. It is not connected with the New Century Bank that failed in Chicago that same weekend, and the timing of the name change appears to have been merely a coincidence.

In Oklahoma, Home National Bank was closed. It had seven locations in northern Oklahoma, four in southern Kansas, and four in Arizona, and $561 million in deposits. The deposits and half of the assets are being acquired by local competitor RCB Bank.

Home National Bank took millions of dollars of losses on foreclosures in Arizona after real estate developers ran out of money.